HSBC reiterates 'Overweight' rating on Kalpataru Power

RESEARCH: HSBC
RATING: OVERWEIGHT
CMP: RS 335

HSBC reiterates 'Overweight' rating on Kalpataru Power with a target price of Rs. 360. Kalpataru Power, last month, announced orders of Rs 1,160 crore, including orders from Power Grid Corp and a pipeline laying order from Hindusthan Mittal Energy.

Thus, its consolidated order book has increased to Rs 6800 crore, or 2x FY09E sales. Its stand-alone order book of Rs 5,100 crore, or 2.4x of FY09E stand-alone sales, is the strongest among the transmission tower companies like Jyoti Structures, at 1.9x of FY09E sales, and KEC International, at 1.5x. In a business that is working capital-intensive , Kalpataru Power has the least balance-sheet gearing, of FY10E net debt/equity of 0.4x, compared to peers such as Jyoti structures, at 0.6x, and KEC International, at 1x.

Based on FY10E price to book (PB) value, Kalpataru Power’s stock is trading at the cheapest multiple of 0.7x; among peers, Jyoti Structures is trading at 0.8x and KEC International at 0.9x. HSBC values Kalpataru using price to earnings (PE) and PB multiple-based methods. Based on a target PE of 5x and December 2009E EPS, fair value for the stock is Rs 340. HSBC’s target PB multiple is 1x, and based on December 2009 BVPS (book value per share), it arrives at a fair value of Rs 380. The target of Rs 360 is the midpoint of our PE and PB multiple-based valuations.
Source: ET